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Well I'm glad that we can take a look more closely at some of the data we got
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in today, the latest manufacturing PMI data from ISM and I'm so glad to have
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our next guest with us, Susan Spence, chair of ISM Manufacturing PMI at Institute
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4 Supply Management. It was such a great job of breaking it all down for us
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because sometimes headlines tell us one thing and the inside tells us another.
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What are the takeaways here from the latest data?
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Good afternoon to come. Thanks for having me. Appreciate it.
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Well we do have our third month in expansion for the overall PMI and our third
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month for new orders all good. But what we do notice this month, besides the
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comments about tariffs which continue in war, are expanding subindexes, new
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orders, new export orders and backlog. We have new orders and backlog that the
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growth is still there but it has slowed down by about two and a half points
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each. So that's a bit worrisome. Production is up for the fifth month in
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expansion but as we know production follows about a month or two behind
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whatever happens with new orders and backlogs. So I'm a bit optimistic but a bit
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less than last month because we're headed back toward the 50 level.
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Employment is stubbornly flat that is no surprise. We still have a sentiment from
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our panelists that say we're not hiring and we're not firing. We're just going to hold
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because we still have some concerns about tariffs. We do have a new worry about war
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and the big news this month for the second time we have a big price hike.
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So we have gone up 19.2 percentage points in two months. That's a very big hike the
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biggest in years. And so inflation is hitting the sectors and it's hitting 17 out of 18 of them.
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So while the war concerns may be shorter lived it is on top of the tariff concerns that are
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still there despite the scotus rolling here. So we're glad we're in expansion but it's
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slowing down and that does not make us happy. Right and the Fed of course takes every little
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piece of news and looks at this. I mean the first part of the story that you noted so clearly was
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the rising prices that became evident right when 78.3 from the prior 70.5. What kind
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of prices are we talking about and do we see those as being sticky or sort of a one off?
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You know this month there were 24 commodities with an increase in price and you can see the
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detail. Some of them have been there for a long time aluminum steel. The surprise were the things
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that showed up for the first time in a while. Corn was one. Some of the different types of fuels
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not a surprise. What was interesting to me is we had no commodities that were lower in price.
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So 17 out of 18 sectors with expanded prices and then no commodities listed as down.
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The short commodities are a lot of them that go into data center and hyperscaler builds, right?
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Memory, electrical, electronic parts, things like that. So at Rare Earth of course short. So we have
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increasing prices. A bit of a slowdown in growth and flat employment. And as you noted the Fed,
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high prices and flat to go in lower employment is the opposite of what they want to see.
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So next month we'll have our semi-annual forecast. So in December I'll remind the audience
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these manufacturers thought they'd have about a 4% growth in revenue. So there was an optimism
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despite the year that we have had. And we will see depending on I think what happens in the
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middle least, but also if there's new news on tariffs. The new orders part slowing the backlog.
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That's problematic. Can that really be start to hit durable goods and all kinds of things in GDP?
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How bad was that? You know the manufacturing sector in contraction,
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just four or five months ago was 80%. It's much, much better now. Strong contraction sitting at about
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four, but you're right. If the new orders head back toward the 50 level and then below,
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backlogs going to follow production is going to follow. Certainly no hiring is going to happen
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of any consequence. And depending on the impact from our prolonged middle least conflict on top of all
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that, it could very well turn the sectors back to contraction. Again, it wasn't that long ago that
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80% of manufacturing sectors were in the contraction area below a 50. So we don't want to see that again.
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We need stability. Any way to sort of give us a glimpse into the rest of the year. I mean,
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is it clear that something, I don't know what, I mean, I know you said about employment being somewhat
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flat, inflation a little bit higher, right, and prices paid a little higher. I think there was
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something with wages that was a little higher, but I can't find it. But between now and the end of
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the year, is there any sort of takeaway that the Fed will definitely be watching or theme?
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I think they watch a lot of things. I think they watch this report carefully. I don't expect
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employment to break out anytime soon. And that is based not just on numbers, but what
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panelists is saying for sentiment. Now, for sure, sentiment on hiring versus firing was for
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every person hiring. There were six that weren't. It's now one to the one and a half range.
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It's much improved, but my belief is because of the uncertainty we still have made worse
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by the Middle East conflict, companies are holding back on hiring, maybe investing in capital.
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And they still have, you know, the threat in the background of replacement tariffs. Let's call
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it the ones that would replace the IEPA. So I hope the semi forecast next month from the
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panelists shows that they still remain optimistic. I would certainly feel better about it if our
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demand indicators continue to grow versus slow down in their growth. Understood. What are you waiting
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on next? You know, what's your next piece of information that you're going to sink your teeth
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into? I know we'll have a jobs report on good Friday. We'll be closed, but people will look at
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that. You know, what what reports are you watching for in the near term? I know that for example,
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also mortgages one from 643 up to 657. I think they've come down a little bit. So what reports
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are you watching for in the next week or so? What's important? You know, one thing I look at every
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month is the consumer sentiment that comes out. The University of Michigan sentiment,
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the conference board sentiment. Those are important. Watch the jobless claims, the continuous
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claims, which were, believe they were flat from last month. I'm mostly going to be looking for,
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and I'm not sure if there's anything coming on these new 150-day tariffs that are the
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administration have talked about that they have started the probes that they need to do to prove
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a certain country might be treating the US unfairly, therefore they can, you know, have the 150-day
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tariffs for a max of 15. I'm also watching for news items like the EU approving the 15%
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tariff deal and my understanding is that's now back with the US counterpart and that there's
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additional conditions on that from the EU not wanted to be treated badly to paraphrase. My
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feeling is if more, if there's going to be tariff deals and more of them get settled that are
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maybe below the 20% level then, and if there's a belief that they are not going to get turned over
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and changed with the next leverage point from the administration that maybe the manufacturers
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are going to feel better, maybe the customer orders will come back a little more. At this point,
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I'd look for no more erosion. That's certain we can expect a big growth trajectory, but
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in your trust. Yeah, in Joel's War Weaker, we did see that. Wages were in the upswing and that's
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where I saw that. Susan Spence Institute for Supply Management. Susan, great to chat with you.
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Really appreciate it. Thank you for coming on in these big days.